By Ron Chen, Correspondent ASEAN Region

For many years, the reinsurance markets of sub-Saharan Africa, though small by global standards, have provided global reinsurers with an opportunity for diversification and profitable revenue growth. However, according to an AM Best report, competition and rising acquisition costs have led to a gradual deterioration in the performance of market participants, reducing the attractiveness of the region to potential new entrants.

In a new Best’s Market Segment Report, “Tough Operating Conditions Present Challenges for Sub-Saharan Reinsurance Markets,” AM Best notes that the operating environments across sub-Saharan Africa remain difficult for domestic and international companies, more recently exacerbated by the COVID-19 pandemic, albeit with varying severity. Many of the region’s markets face double-digit inflation and local currency depreciation; for some countries, government instability and corruption have contributed to social unrest and political uncertainty. Despite these challenges, there remains significant growth potential for the (re)insurance sectors due to the region’s substantial natural resources, a young and growing population and the gradual development of regulatory regimes.

The report also notes that regional capacity is limited. The capital base of sub-Saharan African reinsurers is typically too small to meet the needs fully of the local primary markets, where construction and energy risks often require significant capacity. Established and internationally experienced companies are able to contribute the know-how needed to manage complex risks and offer greater capacity than local market participants. With a few notable exceptions, local and regional reinsurers act as followers, subscribing to the terms and conditions arranged by the lead reinsurer.

AM Best is a global credit rating agency, news publisher and data analytics provider specialising in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in New York, London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City.